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Relational Economics: Finding the Invisible Hand

Submitted by Rick on Wed, 10/03/2012 - 22:06

RELATIONAL ECONOMICS: FINDING THE INVISIBLE HAND

As noted above, where there is a sympathetic relationship a buyer is willing to pay more and a seller is willing to accept less, expanding the trading range and increasing the likelihood that a trade will take place. As the trading range is expanded, the trade begins to flow from the relationship and becomes a mutual trade which balances the needs of both parties rather than being two concurrent one-sided, self-interested trades in which each party is only concerned about his or her own interest. It is precisely at the point at which the trade becomes a mutual trade, flowing from the relationship – where the needs of the customer are balanced with the needs of the seller – that we transition from a paradigm based on economic self-interest to an economic paradigm supported by the common good in the relationship. Importantly, each of us who charged a price of less than $3,000 for at least one of the potential purchasers of the car has identified – and identified with – the dynamic that our trade will be based on the needs of the buyer, as balanced with our own self-interest.

Many who have taken the survey and have recognized this relational dynamic have commented that the dynamic is obvious, that we are not telling them anything new. They are correct. The relational dynamic is so much a part of us that it is innate to us. It is an essential part of our character. Deming (1993) notes that "people are born with a need for relationships with other people, and the need for love and esteem by others." Under Deming's psychology component of his Theory of Profound Knowledge, intrinsic motivation is borne out of this need for relationships, which is borne out of the need to make a contribution (e.g., “what drives me is not what I can get, but what I can give), in contrast with the more independent extrinsic motivation, which has self-interest at its core. Senge identifies the primacy of the whole, which "suggests that relationships are, in a genuine sense, more fundamental than things, and that wholes are primordial to parts. We do not have to create interrelatedness. The world is already interrelated." (Senge, Kleiner, Roberts, Ross, and Smith.) The individual does not exist independent of the community of which he or she is a part. Block (2002) points out the clustering nature of our society and indicates that relationship is an end in itself. Similarly, relationships are at the heart of Covey's principle-centered leadership. It is the process of building relationships of trust that provides a foundation for empowerment and alignment in the organization. It is the relationships which are established at the interpersonal level which permit empowerment at the management level and alignment at the organizational level. Covey notes that duplicity and backstabbing, which destroy relationships, sow the seeds of destruction in an organization.

Relationships permit us to “see the invisible hand” – to see and understand the needs of those with whom we have a relationship in order to develop the resources needed to assist in fulfilling those needs. Indeed, it is these needs (i.e., Adam Smith’s “public good” and “our own necessities”) which are addressed unintentionally (through self-interested action) by Adam Smith’s invisible hand. But if we focus on these needs and assume a direct hand in addressing them, then the hand is no longer invisible. We are discovering these needs and addressing them intentionally in order to improve the well-being of those with these needs.